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Friday, November 22, 2013

Health Insurance Subsidy

I am using the Kaiser Foundation's health exchange insurance subsidy calculator, and it is amazing how sensitive the subsidy is to income level. At $50,000 per year, Silver coverage is $11,872 per year -- but the subsidy knocks this down to $4,750 per year. At $70,000 per year income, there is no subsidy. You would be well advised to pay off your mortgage and have a bit less income in exchange for a bigger insurance subsidy.

UPDATE: The more I play with this calculator, the more stupid the results get. At $63,000 modified AGI, you get no subsidy: silver coverage where I live comes to $11,872 per year, no subsidy. At $62,000, you get a $5,982 subsidy from Uncle Sam. That is a very steep cliff! Making $1000 more loses you $5982 in benefits. I suspect one of two things is going to happen to a a lot of couples making what is really, even in Idaho, a very modest combined income:

1. There is going to be a lot of "I really don't want a raise, sir" discussions with employers.

2. A lot of couples who thought that they were going to get this big subsidy on their health insurance are going to make a few hundred dollars more than they had expected, and end up with a huge bill.

I always though European obsessions with vacations were a little strange until I worked closely with some for years. As the Austrian explained it to me, "If they give me a raise, the government takes 80% of it. But they can't take any more vacation I get."

The non-taxed nature of fringe benefits, from what I have read, is why health insurance as an employee benefit starts to appear during World War II. Marginal tax rates were very high at the time (like 91% in the top brackets), there were wage controls, but health insurance wasn't taxed.

The most common explanation is that wage and price controls kept unions and companies from increasing direct pay, so they added health insurance. The government ruled in 1943 that health insurance was not limited by the controls.

The other (1939) was the exclusion of health insurance from taxation, as you said.

I have no idea the relative magnitude of the effects of the two events.